Exploring the challenges and opportunities shaping success in the year ahead.
A Challenging Year for Retail and BHPH Dealers
2025 Thrive or Survive. If 2024 is any indication, 2025 will be another year of navigating challenges for independent used vehicle dealers. While opportunities exist to thrive, survival mode may dominate for most industries.
Lessons from 2024: Resilience Amidst Challenges
Looking back, 2024 treated independent dealers relatively well, with only a 3% decrease in profitability compared to 2023. This was largely due to operational adjustments, such as cutting unnecessary expenses and focusing on cash and gross generation. Dealers prioritized efficiency and adapted to changing market conditions, a strategy likely to continue into 2025.
Profitability and Growth Expectations
In 2025, dealers must focus on generating capital to sustain operations. Affordable borrowing might facilitate growth for some, but securing new credit lines will remain challenging, requiring patience and industry education. Sales volumes 2024 were flat, driven by cash management rather than market demand. A similar trend is expected in 2025, with inventory availability posing the biggest question. While customer demand remains strong, quality and selection in inventory may be lacking.
BHPH Dealers: Portfolio Performance and Challenges
For buy-here, pay-here (BHPH) dealers, 2024 brought concerning trends in portfolio performance, including increased dollar losses per vehicle and higher charge-offs. Inventory shortages pushed some dealers to accelerate repossessions, but this didn’t always stabilize losses. Renewed focus on underwriting and collections emerged as key strategies. In 2025, these trends will persist, with collection effectiveness expected to improve. However, customers may take another year to regain financial stability and budgeting skills.
Compliance: The Ongoing Priority
Compliance remains a critical focus in 2025, particularly with the Federal Trade Commission’s (FTC) CARS Rule potentially coming into effect. Regulatory uncertainty is causing some dealers to reconsider their participation in the industry. Those who prioritize compliance and invest in proper processes will endure, while others operating in gray areas may struggle.
Thriving Through Survival
To succeed in 2025, dealers must adopt a proactive mindset. Survival of the fittest will favor those who:
- Embrace compliance without delay.
- Regularly review and optimize processes, expenses, and employee performance.
- Invest in training and technology to improve operations.
- Stay agile to capitalize on opportunities to sell cars and generate profit.
By focusing on these strategies, independent dealers can navigate the challenges of 2025 and set themselves up for future success.